Tuesday, May 4, 2010

Freight Rate Forecast

News Flash... Freight Rate Forecast Is In.
Fasten Your Seat Belt - It's Going to Get Rough out There!

Just this morning, I received e-mails from numerous shippers pleading for trucks. Yes, I said “PLEADING” for trucks. Shippers are faced with either increasing rates to compete against their competition or they face the problem of losing business to other companies who can find a way to get the product delivered.

What Is Going On???

According to research, I’ve found a few factors that seem to explain and then forecast what will happen in the future. Let’s start out by figuring out the cause.

Supply of Trucks

Trucking Bankruptcies

Some have already forgotten the greatest recession since the Great Depression. Trucking companies have not. According to Transport Capital Partners, Bankruptcies have idled 445 companies and 21,000 trucks in the 4th quarter of 2009. More than 170,000 trucks have been idled over the last six quarters.

Limited Speeds

Fuel has increased more than 38% today versus a year ago. It is estimated that fuel surcharges are only covering 75-80% of the actual costs incurred by the carriers - especially for long hauls. Carriers have resorted to limiting their truck speeds from 68 mph to 62 mph. This reduction in speed equates to approximately another .5 MPG. The problem? It takes longer to deliver loads and is estimated that drivers will fill up their log books quicker, resulting in an additional 2-3% loss of trucking capacity.

The Result - A Much Smaller Supply of Trucks

The graph shows what has been going on. We simply don't have the trucks on the road that we once did.

Demand For Trucks

While the supply of trucks has dwindled, what about the demand for them??

If you've been following along this blog at all you know that we are under an economic recovery that appears to be sustainable. Of course, that means more manufacturing, more retailing, etc.

That means more demand for trucks.

We all know what more demand and less supply equates to - higher rates.

Certain segments of trucking are in much more demand than others - such as flatbeds vs. reefers. Flatbeds are becoming very difficult to find.

So What About the Future?

There are a few capacity problems for the future.

Loans for New Equipment

Banks are not loaning money to companies that haven't shown a profit. This means that trucks are getting older and older and they are going to be breaking down more and more. This means that there are going to be more loads "piling up" due to truck breakdowns.

Attitude Towards Buying New Equipment

According to Transport Capital Partners, their survey shows that 45% of carriers polled indicate that they will not purchase or add equipment until their fleets are fully utilized and rates have increased. In 2009, 32% felt this way. Another 16% aren't making any plans until they feel the economy has improved and is stable.

CSA 2010

The new safety system will be taking effect at some point this year (exact dates have not yet been determined). It is estimated that up to 175,000 current drivers will become ineligible as soon as the new monitoring system takes effect. This will further put a short term strain on the overall trucking supply.

The Botton Line: If you are a shipper, be prepared for a rough ride the next few months.


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